How was tax measured when a buyer traded California land worth $8,000 for a pickup truck worth less?

Plain-English summary

An individual proposed trading five acres of California land worth about $8,000 for a Toyota pickup valued at about $7,000 retail or $5,000 wholesale.

Counsel treated an exchange as a sale or purchase for consideration. For sales tax, the measure was the value of the property the retailer received. For use tax, the measure was the value of the property the purchaser paid.

If a licensed automobile dealer supplied the truck, the dealer owed sales tax measured by the $8,000 land received. If a private party supplied it, the buyer owed use tax measured by the same $8,000 land value and paid DMV on registration.

The letter warned that DMV might calculate tax using a roughly $7,000 vehicle value. At the historical 6.5% Los Angeles County rate, the buyer would then owe the Board an additional $65 based on the $1,000 difference.

What this means for you

Buyers bartering property for a vehicle

The vehicle's blue-book value did not necessarily set the tax base. The historical measure followed the value of the noncash property exchanged.

Accountants and tax professionals

Determine whether sales or use tax applies, document the fair value of property given and received, and reconcile any DMV collection with the correct exchange value.

Common questions

Q: What property did the buyer give?

A: Five acres of California land worth about $8,000.

Q: What was the truck worth in the example?

A: About $7,000 retail or $5,000 wholesale.

Q: What measure applied if a dealer sold the truck?

A: Sales tax based on the $8,000 land value received by the dealer.

Q: What measure applied in a private sale?

A: Use tax based on the $8,000 land value paid by the purchaser.

Q: What if DMV collected tax using only $7,000?

A: Under the letter's example, the buyer had to remit the difference to the Board.

Citations and references

• California Revenue and Taxation Code §§ 6006(a), 6010(a), 6051, and 6201
• California Sales and Use Tax Regulation 1610

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0008
• Original supporting opinion: 585.0008 PDF

Original ruling text

STATE OF CALIFORNIA

585.0008

STATE BOARD OF EQUALIZATION
(916) 322-3684
February 21, 1986

Your letter of October 22, 1985 has been referred to me for a response. We apologize for the extended delay in our response. You write: “How would I handle the State Sales Tax on the following situation? If I traded a five acre piece of California land worth approximately $8000.00 for a Toyota pickup truck. Let us assume the truck is work $7,000 avg. retail or $5,000.00 wholesale bluebook.” Except where the sales are specifically exempted by statute, sales tax is imposed on retailers for the privilege of selling tangible personal property at retail in this state (Rev. & Tax. Code §6051). In pertinent part, a “sale” is defined to mean and include “any…exchange…of tangible personal property for a consideration” (Rev. & Tax. Code §6006(a)). The use tax is imposed upon the storage, use or other consumption in this state of tangible personal property purchased from a retailer unless specifically exempted by statute (Rev. & Tax. Code §6201). In pertinent part, a “purchase” is defined to mean and include “any…exchange…of tangible personal property for a consideration” (Rev. & Tax Code
§6010(a)).
We have determined that the measure of “consideration” for the “sale” or “purchase” is the property received (for sales tax) or the property paid (for use tax) at the time of sale and delivery of the taxable property sold (sales tax) or purchased (use tax). Applying the foregoing criteria to the transaction described in your letter, if you buy the truck from a licensed automobile dealer, then the sales tax in the applicable tax and the measure of the tax is based on the property received by the dealer (the five acre piece of California land worth approximately $8000). The sale tax is remitted to the Board by the automobile dealer. On the other hand, if you buy the truck from a private part, then the use tax is the applicable tax. The measure of the tax is based upon the property you paid for the truck (the five acre piece of California land worth approximately $8000) and the payment of the tax is made by you, the purchaser, when you register the truck with the Department of Motor Vehicles (DMV) pursuant to the provisions of Sales and Use Tax Regulation 1610 (copy enclosed). We note, however, that if you pay use tax to DMV based upon the vehicle license fees imposed on the truck by DMV, in your case, you will have underpaid the use tax owed by the difference between the purchase price of the truck ($8000) and the amount of the truck’s vehicle license fees (approximately $7000) as assessed by DMV. Under these circumstances, you

should write the nearest Board of Equalization district office and remit the difference ($65, at 6½% tax rate in Los Angeles County) between the amount of use tax already paid to DMV and the correct amount of use tax owed based upon the $8000 purchase price. Otherwise, the Board’s Occasional Sales Use Tax Unit (whose responsibility it is to review transactions where the use tax has been collected for the Board by DMV) will contact you in the future in order to collect the proper amount of use tax owed. We hope the above discussion answers your questions. For your review and reference, we have enclosed a copy of Regulation 1610 (Vehicles, Vessels, and Aircraft). If you have any further questions concerning this topic, please do not hesitate to contact this office. Very truly yours,

Robert J. Stipe
Tax Counsel
RJS:sr